Explorer

The firm sent confirmation requests via email to contacts at financial institutions for certain of the issuer's bank accounts as part of its substantive testing of cash and cash equivalents and the email address for each contact was provided by the issuer. The firm received the responses for all confirmation requests sent via email. The following deficiency was identified: • The firm did not perform procedures to determine whether the confirmation requests were directed to third parties who were knowledgeable about the information to be confirmed. (AS 2310.26)

The firm sent confirmation requests via email to contacts at financial institutions for certain of the issuer's bank accounts as part of its substantive testing of cash and cash equivalents and the email address for each contact was provided by the issuer. The firm received the responses for all confirmation requests sent via email. The following deficiency was identified: • The firm did not consider performing procedures to address the risks associated with electronic responses such as verifying the source and contents of the confirmation responses. (AS 2310.29)

The firm selected for testing a control that consisted of an annual review of certain loans including an evaluation of loan grades. The loan grade was an important input in determining whether a loan would be individually evaluated for impairment or considered as part of the general reserve component of the ALL. The firm did not evaluate the specific review procedures that the control owner performed to evaluate the appropriateness of the loan grade. (AS 2201.42 and .44)

The firm sent positive confirmation requests to the issuer's customers for a sample of deposit liabilities. For the items in its sample for which the requested confirmations were not returned or were returned with exceptions the firm did not perform alternative procedures that provided sufficient evidence that the recorded amounts of the deposit liabilities were accurate as of the confirmation date. (AS 2310.31)

The issuer assigned a loan grade to each loan. The loan grade was an important input in determining whether the loan would be individually evaluated for impairment or considered as part of the general reserve. The firm's sample to test the reasonableness of loan grades was too small because in determining its sample size the firm did not appropriately consider the characteristics of the population. (AS 2315.23 and .23A)

The firm performed various substantive procedures to evaluate the reasonableness of the methods and assumptions the issuer used to calculate the qualitative component of the general reserve of the ALL for originated loans. The firm did not evaluate the reasonableness of certain assumptions the issuer used to estimate the underlying qualitative factors beyond comparing these factors to prior periods inquiring about any changes and recalculating the reserve. (AS 2501.10)

The issuer allocated loans between purchased loans and originated loans for each of six types of loans and then applied different loss rates to each population. The firm did not test the accuracy of the allocation of loans between purchased loans and originated loans. (AS 2501.10)

The issuer engaged service providers to process loan payments based on loan information provided by the issuer for a significant portion of the issuer's loans receivable. The firm's testing of these loans receivable was insufficient because its procedures were limited to confirming loan information with these service providers. (AS 1105.04 and .08)

The firm did not perform any substantive procedures to test loan premiums and discounts. (AS 2301.36)

The firm sent positive confirmation requests to the issuer's customers for a sample of deposit liabilities. For the items in its sample for which the requested confirmations were not returned or were returned with exceptions the firm did not perform alternative procedures that provided sufficient evidence that the recorded amounts of the deposit liabilities were accurate as of the confirmation date. (AS 2310.31)

The issuer recognized revenue for each of its three segments based on the terms underlying its contracts with customers. The firm did not identify and test any controls over the identification and consideration of contract terms that would affect revenue recognition. (AS 2201.39)

The firm tested certain automated and information technology (“IT”) dependent manual controls over revenue that used data and reports generated or maintained by the issuer's revenue systems. The firm tested IT general controls (“ITGCs”) over these systems and identified multiple control deficiencies at two of the issuer's segments. In performing its testing of identified compensating controls for those segments the firm did not identify that the control owners used information in the performance of two of these compensating controls that was produced by the systems that were subject to the ITGC deficiencies. (AS 2201.68)

The sample sizes the firm used in certain of its substantive procedures to test revenue were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

The firm selected for testing controls over the review of non-accrual loans and loans identified as troubled debt restructurings. The firm did not identify and test any controls over the accuracy and completeness of the reports that the control owners reviewed in the performance of these controls. (AS 2201.39)

In the firm's tests of details of revenue for one of the issuer's segments which recorded revenue at the date of shipment the firm did not identify and evaluate for multiple transactions selected for testing the significant differences between the date of shipment and the date revenue was recognized. (AS 2301.08)

In performing its cut-off testing the firm did not test or in the alternative test any controls over the accuracy and completeness of the system-generated reports from which it made its selections for testing. (AS 1105.10)

During the year the issuer acquired a business. The firm did not test the reasonableness of the expected gross margin the issuer used to estimate the fair value of acquired finished goods inventory. (AS 2502.26 and .28)

The firm did not identify and test any controls over the review of contracts that provided preferred pricing to certain customers or controls to determine that the prices charged to customers were consistent with the contracts. (AS 2201.39)

The firm did not perform any substantive procedures to test revenue from contracts that provided preferred pricing to certain customers including procedures to (1) identify and evaluate any contract terms that would affect revenue recognition and (2) evaluate whether the prices charged were consistent with the customer contracts. (AS 2301.08)

The firm did not identify and test any controls over the review of contracts that provided preferred pricing to certain customers or controls to determine that the prices charged to customers were consistent with the contracts. (AS 2201.39)

The firm did not perform any substantive procedures to test revenue from contracts that provided preferred pricing to certain customers including procedures to (1) identify and evaluate any contract terms that would affect revenue recognition and (2) evaluate whether the prices charged were consistent with the customer contracts. (AS 2301.08)

The firm selected for testing controls over revenue consisting of reviews of (1) monthly reports used to record sales and (2) quarterly sales adjustments. The firm did not evaluate the review procedures that the control owners performed including the criteria the control owners used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and .44)

The sample size the firm used in certain of its substantive procedures to test revenue was too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

The firm selected for testing a control that consisted of a quarterly review of the provision for income taxes. The firm did not identify and test any controls over the accuracy and completeness of the information used by the control owner in the performance of this control. (AS 2201.39)

The firm did not identify and test any controls over the issuer's identification of other loans with impairment indicators that had not already been placed in non-accrual status or identified as troubled debt restructurings. (AS 2201.39)

The issuer's deferred tax liabilities were primarily related to timing differences between book and tax depreciation expense for property and equipment. The firm did not perform any substantive procedures to test tax depreciation. (AS 2301.08)

The issuer used two service organizations to process certain revenue. For one service organization the firm did not perform any procedures to obtain evidence regarding the service organization's controls for the year under audit. For the other service organization the firm did not perform any procedures to ascertain whether there were any changes in the service organization's controls from the date of the service auditor's report which was 11 months before year end. In addition the firm selected for testing certain IT-dependent manual controls over this revenue that used data and reports from the two service organizations. The firm's testing of these controls was insufficient due to the deficiencies discussed above. (AS 2201.39 .B19 .B24 and .B25)

The firm selected for testing four controls over the capitalization of internally developed software. The firm did not evaluate the specific review procedures that the control owners performed to evaluate whether project costs met the criteria for capitalization in conformity with FASB ASC Subtopic 350-40 Intangibles – Goodwill and Other – Internal-Use Software. (AS 2201.42 and .44)

Three of the four controls discussed above used reports generated by the issuer's project management system for which the firm tested ITGCs. The firm identified a deficiency related to certain individuals having privileged access to this system that could circumvent controls but did not evaluate the severity of this deficiency. (AS 2201.62)

In addition the firm selected for testing a control over change management for the project management system. The firm tested this control through the second quarter but did not perform any procedures to update the results of its testing from that interim date to the issuer's year end. (AS 2201.55 and .56)

As a result of these testing deficiencies the firm's testing of the three controls discussed above was not sufficient because these controls used reports generated by this system. (AS 2201.46 and .47)

The sample sizes the firm used in certain of its substantive procedures to test capitalized internally developed software costs were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

The issuer stored certain raw materials in boxes with varying quantities. The firm selected for testing a cycle-count control over the existence of this inventory that consisted of (1) selecting a daily count location within the warehouse and counting the boxes of inventory in that location and (2) counting the contents of a small number of these boxes. In testing the cycle-count procedures that the issuer used for this inventory the firm did not evaluate whether the control was appropriately designed because the control owner was only required to count the contents of a small number of boxes in the selected daily count location. Further the firm did not test whether this control addressed that all inventory locations within the warehouse were counted during the period. (AS 2201.42)

The firm selected for testing a control that consisted of a review of uncertain tax positions. The firm did not evaluate the review procedures that the control owner performed including the criteria the control owner used to identify items for follow up and whether those items were appropriately resolved. (AS 2201.42 and .44)

The firm's sample to test the reasonableness of loan grades was too small because in determining its sample size the firm did not appropriately consider the characteristics of the population. (AS 2315.23 and .23A)

The issuer used a model to estimate the general reserve component of the ALL which consisted of quantitative qualitative and unallocated components. The unallocated component represented a significant portion of the general reserve. The following deficiencies were identified: · The firm selected for testing a control that consisted of the evaluation of the reasonableness of the ALL including the general reserve. The firm did not evaluate the specific review procedures the control owner performed to assess the reasonableness of certain assumptions used to estimate the general reserve. (AS 2201.42 and .44)

The issuer used a model to estimate the general reserve component of the ALL which consisted of quantitative qualitative and unallocated components. The unallocated component represented a significant portion of the general reserve. The following deficiencies were identified: · With respect to the firm's substantive testing of the general reserve the firm did not test the reasonableness of the significant unallocated component beyond comparing the current year's general reserve to the prior year's. (AS 2501.07)

The firm did not identify and test any controls over the accuracy and completeness of the deposit transaction data that were input into the issuer's deposits system. (AS 2201.39)

The issuer placed items in deposit suspense accounts when the items required further evaluation. The firm did not identify and test any controls over the review of items in certain of these accounts and whether those items were appropriately resolved. (AS 2201.39)

The sample sizes the firm used in certain of its substantive procedures to test deposit liabilities were too small to provide sufficient appropriate audit evidence because these procedures were designed based on a level of control reliance that was not supported due to deficiencies in the firm's control testing discussed above. (AS 2301.16 .18 and .37; AS 2315.19 .23 and .23A)

The firm selected for testing a control that consisted of the review of new contracts and certain changes to existing contracts. The firm did not evaluate the review procedures that the control owner performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The firm selected for testing a control over the review of qualitative factors which are inputs used in determining the general reserve component of the ALL. The firm did not test the aspect of this control that addressed the accuracy of certain data used in the performance of this control. (AS 2201.42 and .44)

The issuer used loan charge-offs as inputs to determine the general reserve component of the ALL. The firm selected for testing a control that included the review of loan charge-offs and the evaluation of charge-offs excluded from the calculation. The firm did not evaluate the specific review procedures the control owner performed to evaluate the charge-offs excluded from the calculation. (AS 2201.42 and .44)

The firm selected for testing a control that consisted of the review of the provision for income taxes including the issuer's review of (1) the effective tax rate reconciliation and (2) considerations regarding the need to record a deferred tax asset valuation allowance. The firm did not evaluate the specific review procedures that the control owner performed to assess the effective tax rate and whether a valuation allowance was needed. (AS 2201.42 and .44)

The issuer determined that no deferred tax asset valuation allowance was necessary for the current year. The firm did not evaluate the appropriateness of the assumptions the issuer used in its determination. (AS 2501.11)

The issuer recorded the fair value of available-for-sale ('AFS') securities based on the prices it obtained from an external pricing service. The firm selected for testing a quarterly control that consisted of the issuer's comparing for one-fourth of its AFS securities these prices to prices it obtained from another external pricing service. The firm did not evaluate whether the control was appropriately designed to consider whether there were changes to the risk of material misstatement inherent in the population of securities from the issuer's interim testing dates to the issuer's year end. (AS 2201.42)

The firm selected for testing a control over the issuer's review of forecasts that it used in its (1) annual goodwill impairment assessment and (2) evaluation of its ability to continue as a going concern. The firm did not (1) determine the frequency with which the control was performed and (2) evaluate the review procedures that the control owners performed including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved. (AS 2201.42 and .44)

The issuer performed its annual analysis of the possible impairment of goodwill as of an interim date. The firm performed substantive procedures to evaluate certain assumptions underlying the cash-flow forecasts that the issuer used to determine the fair value of its reporting units for this analysis. The firm however (1) evaluated these assumptions at the consolidated financial statement level and not at the reporting unit level and (2) did not evaluate certain other assumptions underlying the cash-flow forecasts including the issuer's ability to carry out specific actions. (AS 2502.26 .28 .31 and .36)

The firm selected for testing a control that included the issuer's review of triggering events as potential indicators of goodwill impairment. In its testing of the operating effectiveness of this control the firm did not identify that the issuer's evaluation did not consider certain adverse market conditions and deteriorating financial results that arose before and after year end. (AS 2201.44)

The firm did not sufficiently evaluate the issuer's determination that it did not need to test goodwill for impairment between its annual tests because the firm did not identify that the issuer's evaluation did not consider certain adverse market conditions and deteriorating financial results that arose before and after year end. (AS 2301.08)